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Trade of the Week – Bull Put Spread – CSL

March 2, 2022

Trade of the Week – Bull Put Spread – CSL

This week we have selected a bull put spread on CSL as the trade of the week. This trade is a bullish credit spread, where you receive upfront premium for entering the position and the best outcome is for it to expire worthless, so you can keep the upfront premium.

This week we have selected a bull put spread on CSL as the trade of the week. This trade is a bullish credit spread, where you receive upfront premium for entering the position and the best outcome is for it to expire worthless, so you can keep the upfront premium.

We have chosen CSL for a short-term range trade, and plan to close out of the position after the stock hits the 50-day MA.

Setting up the trade involves selling an in-the-money put (for upfront premium) and buying an at-the-money put (as protection).

We have selected CSL as a range trade for the following reasons:

  • The share price has found support around $260 for eight consecutive days.
  • This support is at the level of the level CSL traded after the release of its half-yearly results.
  • The stock has mostly experienced green candles when hitting this support level.

CSL has good market maker coverage, which means the spreads will be smaller.

Source: Implied Volatility

Enter Bull Put Spread:

When creating this strategy, you want to ensure you are setting the strike prices so the strong technical levels will deliver a profitable outcome. We have chosen a strike of $258 for the sold put, which will be profitable if the stock hits the 50-day MA around $270. We have chosen an American option, so there is some risk of early assignment, however this is a short-term trade (holding period of 1-3 days) with two weeks to expiry and an upcoming ex-dividend date in five days. This will be a very short-term trade and due to the upcoming ex-dividend date the likelihood of assignment is higher than usual.

For the bought leg, we choose a strike price at $254, which is slightly out of the money. We will buy an American put to protect the American sold put in case of assignment.

Managing the Trade:

We are aiming for the stock to move towards the $270 level over the next three days. If the stock does not reach this level within time, it may be best to close the position to avoid assignment before the ex-dividend date. If the stock hits $270, you could close the position.

Be careful to adjust the order price when entering and exiting the position to account for upcoming dividends. If you are worried about assignment, you can consider a European option for the bought or sold puts.

 

For further information on using the Implied Volatility platform you can follow this link, here.

To try trading for yourself using the most powerful Options Trading technology in Australia, click here for a trial for our Implied Volatility platform

We wish you good luck with your trading, and as always if you have any questions, please feel free to contact our trading desk on (03) 8080 5795. Please note, we provide General Advice only. 

Past performance is not a reliable indicator of future performance. 

The opinions expressed in this article are our personal views. 

Trading options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only trade if you are confident that you fully understand what you are doing. From 5 October 2021, under Design and Distribution Obligations, anyone opening a trading account will be required to meet the Target Market Determination criteria of Phillip Capital and subject to an assessment the results of which will determine your eligibility for a trading account, for further information please see here.

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Any advice provided by *Reach including on its website and by its representatives is general advice only and does not consider your personal objectives, financial situation or needs, and you should consider whether it’s appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. Please click here https://reachmarkets.com.au/general-advice-warning/ to read our full general advice warning.


General Advice Warning

Any advice provided by Reach Markets including on its website and by its representatives is general advice only and does not consider your objectives, financial situation or needs, and you should consider whether it is appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) including the Privacy Statement and any relevant Product Disclosure Statement or Prospectus (if one is available) to understand the features, risks and returns associated with the investment.

Please click here to read our full warning.

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